Volatility has returned with a vengeance in the first half of 2018. Tuesday was no exception, with stocks down sharply on renewed worries about President
Donald Trump
’s trade feud with China. Yet, for all of its whipping around, the stock market is even with where it was in early January. Considering how high investors had set their expectations, they should be pleased to have gotten off so easily.

The stock market has some things going for it right now, of course. Corporate tax cuts helped push profits up sharply—analysts polled by FactSet estimate second-quarter earnings for companies in the S&P 500 will be up by 19% from a year earlier after rising 25% in the first quarter. Economic growth appears to have picked up too, with the effects of a strong job market and the personal income-tax cuts many Americans received combining to drive consumer spending.

But investors had already driven stocks sharply higher by the start of the year in anticipation of all this. What they hadn’t anticipated were the other risks that would weigh on stocks. Chief among them are a Federal Reserve that is showing little timidity about raising rates, slowing growth overseas and the multiple trade skirmishes that Mr. Trump has embarked upon.

The Fed has raised rates by a quarter point twice already this year and policy makers are leaning toward raising them two more times. That is a conclusion that investors are coming around to: Futures markets now put the chances of two more hikes at 51%. Compare that with the start of the year when the odds of the Fed raising rates four times stood at just 10%.

And with inflation warming up and the unemployment rate on course to drop from an already extremely low 3.8%, the Fed will likely have to keep hiking when next year rolls around. That has helped push the yield on the 10-year Treasury note to 2.88% from 2.41%. The 10-year yield might be higher still if it weren’t for something else: Economic growth outside of the U.S. has begun to look a little less rosy.

Economists’ growth forecasts for most major economies have fallen since the start of the year. That makes for slower global demand growth at U.S. multinationals’ overseas operations. Compounding the problem, stronger relative growth in the U.S. has pushed the dollar higher, lowering the dollar value of the goods and services that U.S. companies sell abroad.

One particular area of concern on the economic front is China, which in the past has countered weakening global growth with stimulative policies. Now, though, it is tightening the screws on risky funding practices and damping its own growth as a result.

China is also the main focus of the administration’s escalating trade disputes and so far its leaders are showing no sign of taking Mr. Trump’s actions lying down. How that might affect the U.S. economy and U.S. companies is a wild card since there is no telling how far things will go before either country de-escalates or what pressure points that might emerge in global supply chains.

The trade troubles, along with the Fed’s moves and weaker global outlook, have led investors to lower their expectations. The S&P 500 now trades at 16.6 times expected earnings, according to FactSet, versus 18.2 times at the start of the year. That compares with a five-year average of 16.2, yet those were five years in which interest rates were significantly lower.

The stock market’s ability to absorb body blows therefore looks more limited at a time when it looks like the punches will keep on coming.